Enron

Enron: Analysis and Lessons

What They Did and Why

Financial Games of Enron

The Enron Corporation grew from a small Houston energy startup business into one of the world’s most powerful companies, and then imploded in a massive collapse that shook the entire financial world. This huge collapse was directly due to financial accounting abuse by its executives and auditors.

As a result of financial mismanagement, the Enron Corporation fell from being a huge powerhouse of Wall Street to just an encyclopedia entry. Along the way, thousands lost millions, people were sent to prison, collateral damage ensued, and new laws were enacted. (LePatner, Corn, and Chan, 2007).

Enron was started from a merger of two natural gas companies in Houston, Texas in 1986. As Enron grew, it branched out into any field in which it saw profit potential. It was best known as a cutting-edge energy broker. Company president Kenneth Lay propelled it to a $90 stock price and Fortune 500 status by apparent genuine innovation. As a result of energy deregulation by Congress in the 1990’s, Enron’s revenue swelled to epic proportions, on paper. Stock analysts were convinced the company was only going to keep growing. What the public and the analysts did not know was that Enron kept costs and debts off the financial statements when business did not go as well as planned. This is the reason for the collapse. There were other exacerbating factors, such as executive dastardliness, a double-dipping accounting firm, and just bad timing in the economy, but the main cause that gave grounding for everything else was the fact that Enron did not play fair with financial statements

To gain a better understanding of the firm’s implosion, we have to start with a timeline of selected key events. Looking at these events chronologically will paint a picture of the rise and fall of this firm that transformed into an icon of corporate financial mismanagement for not only the United States but for the whole world....